IFC launches $1 billion masala bond programme in the US and Europe

First tranche opens on LSE; Centre, RBI had taken steps to promote such bonds to shore up rupee value

Taking advantage of tax sops, IFC, the World Bank’s lending arm, has launched its $1 billion masala bond programme in the US and Europe. 

According to the IFC, the first tranche of $100 million under the programme opened on Thursday night on the London Stock Exchange.

It was sold to a range of investors, including asset managers, banks and a pension fund, in the US and Europe.

These bonds are aimed at funding the rapidly expanding investment activities of IFC in India.

“Our investment activities in India touched a record high last year. In line with our strategy, we have made big strides in the areas of affordable housing, SME finance, distressed assets resolution, renewable energy, logistics, and technology,” said Mengistu Alemayehu, director, south Asia, IFC.

He said IFC’s pipeline remains strong, and this bond programme will help it support its investment activities in the near and medium terms.

“The bulk of our investments in India are in local currency. The masala bond market remains an attractive source of financing and we are tapping it again to fund an ever-growing pipeline,” said Keshav Gaur, director, treasury client solutions, IFC.

Masala bonds are rupee-denominated borrowings issued overseas. IFC uses them to raise rupee funds overseas and brings the proceeds to India for investments. 

The government and the Reserve Bank of India (RBI) have taken a string of steps to support masala bonds last month with an aim to prop up the rupee against the dollar. 

The government exempted withholding tax on these bonds and the RBI has permitted banks to issue these papers overseas for their capital requirements and to finance infrastructure and affordable housing.

IFC pioneered the masala bond programme in October 2013 to support capital market development and provide rupee financing for investment activities in India.